Solar Panels in Arizona: Costs, Trends, Incentives

The typical pre-incentives price for a home solar system in Arizona was $28,426 in the second half of 2023, according to data from EnergySage, a solar and home energy product comparison marketplace. That’s on the lower end among the 42 states that EnergySage surveyed, compared to an average of $34,122 and a high of $46,403 in Kentucky.

Despite policies that can make going solar in Arizona less cost-effective for consumers, the state has the fifth-largest installed solar capacity in the nation, according to the Solar Energy Industries Association. Solar costs in the state have also plummeted by 43% in the last decade. ^[0]

According to EnergySage, the average home solar power system size in Arizona at the end of 2023 was 12.4kW. A greater reliance on air conditioning results in higher average household electricity use in Arizona than in some parts of the country, requiring slightly larger solar systems than the national average of 11.6kW.

However, the low cost per watt of Arizona solar makes systems there cost-effective. The federal solar tax credit can reduce the upfront cost for solar by as much as 30%, bringing the typical cost down to $19,898. State incentives can further lower the cost.

The average payback period for a solar system in Arizona is 11 years, according to June 2024 data from EnergySage, with 20-year savings on an average system estimated at $19,628. Solar costs in Arizona, already the lowest in the nation per watt, have been trending down, dropping by 2% between the first and second half of 2023, according to EnergySage. ^[0]

As in many states, the biggest solar incentive for Arizona homeowners is the federal solar tax credit, or residential clean energy credit, which provides a credit of up to 30% of the cost of your solar power system.

On the state level, Arizona encouraged solar installations with policies like the 2006 Renewable Energy Standard and Tariff, which required Arizona utilities to source 15% of their energy from renewable sources. Of that amount, 30% was required to come from distributed sources like rooftop solar.

Over time, many of these incentives have been phased out as rooftop solar adoption has increased in the state, and new fees have been imposed on solar customers. But Arizonans can still benefit from certain incentives and protections:

As part of a trend across the nation, Arizona’s net metering (NEM) program, which gave solar customers credit on their electric bill for any unused electricity their system sent back to the power grid, has been phased out. In 2016 the Arizona Corporation Commission (ACC), which regulates many of the utilities in the state, replaced Arizona’s NEM program with a net billing program known as the Resource Comparison Proxy (RCP).

The RCP compensates solar customers at a lower rate than NEM did for excess power they send to the grid, under a tiered step-down that can go down up to 10% per year, eventually arriving at the “avoided cost” rate, according to Autumn T. Johnson, executive director of the Arizona Solar Energy Industries Association (AriSEIA). The avoided cost rate is much lower than the retail rate of electricity, representing the cost a utility avoids by using solar customers’ excess solar instead of producing that electricity themselves or purchasing it elsewhere.

Each utility does its own avoided cost calculation, so your RCP export rate will depend on your utility. As of September 2023, the export rates for Arizona Public Service and Tucson Electric Power were 8.465 cents/kWh and 7.81 cents/kWh, respectively. But Salt River Project, a large utility that is not regulated by the ACC, was able to drop the export rate dramatically to 2.81 cents/kWh.

“Given the current RCP structure, it’s better to go solar sooner rather than later, because the longer you wait, the lower the export rate is,” says Johnson.

Home solar batteries cost an average of $8,526 in Arizona after the federal tax credit, according to EnergySage. ^[0]

• Batteries improve the economics of home solar under net billing because instead of sending excess energy back to the grid at a lower credit, you can store the energy to use later.

• Most Arizona solar customers are required to be on a time-of-use (TOU) electricity rate, under which electricity rates are lower at times of low demand and higher at times of high demand. You may use more electricity in your home when you return home from work, demand is high, and the sun is going down so your panels are generating less electricity. A battery can lower your costs by storing the electricity your panels generate during the day for your use in the evening.

• Some of the TOU rate plans in Arizona include demand charges, which are based on spikes in your energy demand. Your home could be using a relatively small amount of energy, but spikes during these times can increase your electricity bill dramatically. As with TOU rates, batteries can lower demand charges significantly by storing electricity that you can use during peak use times.

• With more heat waves straining the power grid, batteries provide reliable energy backup. Solar alone won’t keep your home powered during an outage, because systems are designed to shut off if there’s an outage to ensure the safety of utility workers.

Like solar costs, battery costs are expected to keep falling, and technologies are constantly improving. Arizona is beginning to offer residential customers demand response programs, which help avoid strain on the power grid by incentivizing customers to shift their energy use to times when demand is lower. With a home solar battery, you can get the most out of these programs.